Coinbase released its Q4 2023 earnings report on February 15, revealing that the company is set to play a dominant role in the coming year, largely due to its Bitcoin (BTC) trading activities. The company’s technology expenses for 2023 were $1 billion lower than the previous year, and its net income and earnings (EBITDA) are showing positive trends.
In the past, Coinbase’s platform attracted a wide range of crypto assets, capturing investor attention. However, over the past two years, both retail and institutional volumes have decreased, with Bitcoin and Ethereum (ETH) emerging as the dominant favorites in the cryptocurrency space, with Bitcoin leading the way.
While other cryptocurrencies continue to be subject to intense investor speculation, they still contribute to almost half of the company’s transaction revenues. Stablecoins, on the other hand, had a promising start on the Coinbase platform, accounting for 22% of the company’s revenues in a year where subscriptions and services made up almost half of the total.
Retail investor transactions, which used to generate nearly all of Coinbase’s revenues, now represent less than half of the net revenue. However, subscriptions and services have experienced strong growth over the past two years, offsetting the decline in transaction volumes.
Custodial fees, earned when customer cash balances are invested in US Treasuries or money market funds, have shown a declining trend year-on-year. This suggests that cryptocurrencies are losing traction among investors, possibly due to the high costs associated with converting them into fiat currencies.
However, the recent success of Bitcoin ETFs indicates a positive outlook for cryptocurrencies as an investment. Daily volumes in these ETFs have consistently exceeded $1 billion since their launch, and with Coinbase acting as the custodian for eight out of the 11 Bitcoin ETFs, the company is likely to experience significant growth as more investors buy into these funds. It is worth noting that these ETFs were approved and traded after January 10 and therefore are not accounted for in this earnings release.
Coinbase may face challenges in the Bitcoin ETF market as other exchanges now have a strong incentive to enter the market with their own custodial platforms. How the company will respond to this challenge remains unknown, but significant announcements are expected in the coming year.
Apart from Bitcoin and Ethereum, other cryptocurrencies that are not as well-known also generate intense speculation, creating additional opportunities for Coinbase. The company launched “International Markets” in May 2023, allowing select international customers to trade 15 perpetual futures contracts on different cryptocurrencies. This generated approximately $10 billion in trading volume by the third quarter of 2023.
Coinbase Financial Markets (CFM) also started offering regulated derivatives for the US market in November, and it is expected that derivatives will become the next driver of volume and growth for the company, as derivatives markets tend to be larger than spot markets.
Coinbase’s Base platform, built on Ethereum, went live in August. It is a layer-2 (L2) blockchain designed to help customers convert their holdings to and from fiat currencies more efficiently for real-world use. The platform has gained significant traction and currently ranks as the fourth-largest L2 player by total value locked (TVL) on Ethereum.
With greater exposure to international markets, Coinbase customers could benefit from a network of cryptocurrencies, stablecoins, and apps interconnected with central bank digital currency (CBDC) networks in Japan, India, and China. This could enable cheaper remittances and access to other currencies. Overall, Coinbase is well-positioned to explore numerous possibilities in the near future.
Sandeep Rao, a senior quantitative researcher at Leverage Shares, wrote this article. He has extensive experience in the finance industry and holds an M.S. in finance and an MBA from the Illinois Institute of Technology.
Please note that this article is for general information purposes only and should not be considered legal or investment advice. The views expressed in this article are solely those of the author and do not necessarily reflect the views of Cointelegraph.